Russian firm to seek venture with Ford

Detroit Free Press - Russian manufacturer OAO Sollers said Friday it will pursue a joint venture with Ford, after ending talks on a similar partnership with Fiat.

It's a setback for Fiat and Chrysler because the Italian automaker, which owns 25% of Chrysler, will now need to grow a substantial presence in the rapidly growing Russian market.

Ford last year captured a modest 4% of the Russian car market, where new vehicle sales rebounded by 70% after falling 50% in 2009.

"Ford was late in setting up a strong presence in China, and it is clear they do not want to miss the rebound in Russia," said Jeff Schuster, head of global forecasting for J.D. Power and Associates.

Fiat and Sollers announced their plan a year ago to use $3.3 billion in loans subsidized by the Russian government to build a factory capable of producing as many as 500,000 vehicles by 2016.

Fiat's plan was to produce as many as nine new models in the compact and midsize car and SUV segments that would include several Chrysler, Dodge or Jeep models.

Fiat is trying to expand in eastern Europe, where costs are lower than in western Europe and car sales are growing. This is the second Russian partnership that has fallen through for the Italian automaker. In 2007, Renault outbid Fiat for a stake in Avtovaz, Russia's largest automaker.

"This is a blow to Fiat's growth strategy across eastern Europe," Schuster said, "I suspect that they are developing another strategy and may seek a different partner."

Fiat lost about $1.37 billion in Europe last year, which was offset by an operating profit of $1.9 billion in Brazil, according to Max Warburton, an analyst with Sanford C. Bernstein in London.

"The benefits provided by the proposed joint venture will be key enablers to build the Ford brand in Russia," Ford of Europe Chairman Stephen Odell said in a statement.

Boston Consulting Group forecasts that Russians will buy 3.5 million vehicles in 2015 and 4 million a year by 2020. If accurate, Russia would surpass Germany in 2018 as Europe's largest light-vehicle market.

Ford was Russia's 11th best-selling car brand in Russia in January, and Fiat was in 27th place, according to the Association of European Businesses.